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Tesla (TSLA) and SolarCity (SCTY) Agree to Merge for $2.6 Billion
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Tesla (TSLA - Free Report) has reached a deal to acquire SolarCity for $2.6 billion in an all-stock purchase. The figure represents a discount compared to its previous offer to buy SolarCity for $26.50-$28.50 per share. SolarCity stockholders will receive 0.11 Tesla shares for each stock of SCTY that they own. When considering the weighted average price for TSLA stock over the last week, the deal ends up valuing each SolarCity share at $25.37.
Tesla hopes that the acquisition will make both companies better off by increasing manufacturing efficiency and lowering customer acquisition costs. The company forecasts savings of $150 million in the first year for the combined corporations. It is not clear who will save more, but many investors expect to see SolarCity receive the most benefit from cost-saving synergies. SolarCity will probably receive a lot more publicity after being brought in under the Tesla label. Tesla’s 190-store retail network will be used to market both companies’ products and services, and customers are expected to save money because of lower hardware and installation costs.
There was a lot of speculation over whether the deal would be possible at all, and that’s because of Elon Musk’s deep ties with SolarCity. He is the largest shareholder at TSLA and SCTY, and Elon Musk is also the chairman of SolarCity. Musk’s cousin is the co-founder and CEO of SolarCity, so it is not very hard to see why many shareholders feel as though there may be a conflict of interest with the SolarCity acquisition.
Musk hopes that Tesla will be a vertically integrated energy company, but that’s probably not what most Tesla shareholders wanted to see when they bought shares of the electric car manufacturer. Musk envisions SolarCity’s panels as a power-source for at-home car chargers, and through this, he sees customers receiving a cheap and clean driving experience.
Bottom Line
The vision is very ambitious, but many question whether or not Tesla will have the cash flows it needs to sustain long term progress. SolarCity and Tesla have grown reliant on financing, and this deal may add to Tesla’s woes in that regard. SolarCity has $3.25 billion in debt, and $1.23 billion of those debts are due at the end of 2017, according to Bloomberg. The company’s burgeoning debt has lead many investors to believe that this acquisition is a bailout for one of Musk’s corporations. Only time, and probably a lot of it, will tell as to whether or not this deal will yield fruit for current Tesla shareholders. The deal still requires approval from regulators and shareholders from both companies, so there is still hope for investors who are currently experiencing buyer’s remorse.
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Tesla (TSLA) and SolarCity (SCTY) Agree to Merge for $2.6 Billion
Tesla (TSLA - Free Report) has reached a deal to acquire SolarCity for $2.6 billion in an all-stock purchase. The figure represents a discount compared to its previous offer to buy SolarCity for $26.50-$28.50 per share. SolarCity stockholders will receive 0.11 Tesla shares for each stock of SCTY that they own. When considering the weighted average price for TSLA stock over the last week, the deal ends up valuing each SolarCity share at $25.37.
Tesla hopes that the acquisition will make both companies better off by increasing manufacturing efficiency and lowering customer acquisition costs. The company forecasts savings of $150 million in the first year for the combined corporations. It is not clear who will save more, but many investors expect to see SolarCity receive the most benefit from cost-saving synergies. SolarCity will probably receive a lot more publicity after being brought in under the Tesla label. Tesla’s 190-store retail network will be used to market both companies’ products and services, and customers are expected to save money because of lower hardware and installation costs.
There was a lot of speculation over whether the deal would be possible at all, and that’s because of Elon Musk’s deep ties with SolarCity. He is the largest shareholder at TSLA and SCTY, and Elon Musk is also the chairman of SolarCity. Musk’s cousin is the co-founder and CEO of SolarCity, so it is not very hard to see why many shareholders feel as though there may be a conflict of interest with the SolarCity acquisition.
Musk hopes that Tesla will be a vertically integrated energy company, but that’s probably not what most Tesla shareholders wanted to see when they bought shares of the electric car manufacturer. Musk envisions SolarCity’s panels as a power-source for at-home car chargers, and through this, he sees customers receiving a cheap and clean driving experience.
Bottom Line
The vision is very ambitious, but many question whether or not Tesla will have the cash flows it needs to sustain long term progress. SolarCity and Tesla have grown reliant on financing, and this deal may add to Tesla’s woes in that regard. SolarCity has $3.25 billion in debt, and $1.23 billion of those debts are due at the end of 2017, according to Bloomberg. The company’s burgeoning debt has lead many investors to believe that this acquisition is a bailout for one of Musk’s corporations. Only time, and probably a lot of it, will tell as to whether or not this deal will yield fruit for current Tesla shareholders. The deal still requires approval from regulators and shareholders from both companies, so there is still hope for investors who are currently experiencing buyer’s remorse.
The Zacks Rank is a truly marvelous trading tool. Our ranking system has beaten the S&P 500, yielding an average return of 25% per year for the last 29 years! Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>